Lesson 5: Technical Analysis Basics
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Introduction
Technical analysis is one of the most important skills for any trader. It is the study of price movements using charts, patterns, and indicators to predict future market behavior. Unlike fundamental analysis, technical analysis focuses purely on price action and market psychology.
What Is Technical Analysis?
Technical analysis is based on the idea that price reflects all available information. Traders analyze historical price data to identify patterns and trends that may repeat in the future. This method is widely used in crypto, forex, and stock markets.
Price Charts Explained
Charts visually represent price movements over time. The most commonly used chart type is the candlestick chart. Each candlestick shows four key prices: open, high, low, and close.
Candlestick Patterns
- Bullish candles show buying pressure
- Bearish candles show selling pressure
- Doji candles indicate market indecision
- Engulfing patterns signal reversals
Trends in Technical Analysis
Markets move in trends: uptrend, downtrend, or sideways. Identifying the trend helps traders trade with the market rather than against it.
Support and Resistance
Support is a price level where buying interest is strong. Resistance is a price level where selling pressure appears. These levels help traders plan entries, exits, and stop losses.
Indicators in Technical Analysis
- Moving Averages (EMA, SMA)
- Relative Strength Index (RSI)
- MACD
- Volume
Why Technical Analysis Works
Technical analysis works because markets are driven by human behavior. Fear and greed repeat over time, creating recognizable patterns.
Common Beginner Mistakes
- Using too many indicators
- Ignoring trend direction
- Overtrading
- Not using stop losses
Conclusion
Technical analysis provides traders with a structured approach to understanding market movements. Mastering the basics is essential before applying advanced strategies.
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